THE issues before the Bench are - Whether in case of TDS default by the assessee, the criminal prosecution can be launched independent of the recovery proceedings; Whether the pendency of recovery proceedings is a legal impediment to the launch of criminal prosecution in case of TDS default and Whether quantification of sum for the initiation of prosecution is necessary. And the verdict goes against the assessee.
Facts of the case
The assessee is a registered company engaged in the business of operating passenger air lines in India. Revenue had filed case before the Economic Offences Court against assessee for the FYs 2009-10, 2010-11 and 2011-12 for the offences punishable u/s 276-B read with Section 278-B. A survey on the premises of assessee u/s 133-A. During survey, it was noticed from the records available that assessee had deducted TDS and failed to remit the same to the Government account for the FYs 2009-10, 2010-11 and 2011-12 to the tune of Rs.400,56,08,659/-. During verification of records, at the time of survey and in the subsequent proceedings after the survey it was detected that assessee company had deducted TDS on various payments and failed to remit the same to the Government accounts. Assessee company, its principal officer and the authorized representatives admitted the liability of TDS and failed to pay the same. AO passed an order u/s 201(1) and 201(1-A) treating assessee as an assessee in default and levied interest for not remitting the TDS within the stipulated time and raised a demand. On appeal, CIT(A) had dismissed the assessee's appeal. On further appeal, Tribunal had allowed the appeal filed by assessee, set aside the order of AO and CIT(A) and remanded the matter back to AO for reconsideration in accordance with law after providing an opportunity to the petitioners. On further appeal, HC granted an interim order of stay, staying the remand order passed by the ITAT. Thus, AO issued demand notice to the assessee. Therefore assessee approached HC challenging the order of ITAT remanding the matter and also the demand notice. HC granted an interim order subject to the petitioners depositing 50% of the demand. At that time, the Revenue filed three private complaints against the petitioners for the offences punishable u/s 276-B and 278-B in C.C. Nos. 49/2013, 77/2013 and 78/2013 on the file of Special Court (Economic Offences) Bangalore. The Special Court had taken cognizance of the offences against the petitioners, registered the cases and issued summons.
Before HC, the assessee's counsel had contended that when the order of AO treating the petitioners as assessee in default and levying interest for not remitting TDS within the stipulated time was set aside by the ITAT then the private complaints for offences punishable u/s 276-B r.w.s 278-B before the Special Court were not maintainable. The interim order granted by HC and connected matters was only restraining further proceedings pursuant to the order of remand but, it will not amount to revival of the order of AO. Therefore the very initiation of criminal proceedings against the petitioners before the special Court were liable to be dismissed as not maintainable. It was contended that without quantification of the salaries paid and TDS the proceedings initiated before the Special Court were liable to be dismissed. In the complaint filed by Revenue it was not pleaded what was the accrual of payment and what was the actual payment made to the employees as salaries and actual deductions. In the absence of any such pleadings the question of deducting TDS and remittance of the same will not arise. The alleged admission of the liability to pay TDS by the assessee was categorically negatived by the ITAT and as such no reliance can be placed on the alleged admissions. It was further contended that as per the proviso to Section 279(1) it was necessary that a direction or instruction from the officer mentioned therein was necessary for passing an order of sanction by the Chief Commissioner, Director General or Commissioner. In the instant case there was no such direction or instruction. Therefore the sanction order issued by the Commissioner to prosecute assessee was bad in law and contrary to the mandatory requirement specified in the proviso to Section 279(1). The ACIT [TDS Circle – 16(2)] sought for sanction but, it was given to ACIT [TDS Circle – 16(1)] and he has filed the complaints before the Special Court and as such they were bad in law.
On the other hand, the Revenue's counsel had contended that the complaint filed by the Revenue was not based on the order of AO u/s 201(1) and Section 201(A). The complaint against the petitioners was based on the records and the categorical admissions made by the asseseee. It was contended that the quantification of the salaries paid to the employees and the actual deduction of TDS was not necessary for initiation of proceedings for the offences punishable u/s 276-B and 278-B. It was contended that the complaint against the petitioners contain the necessary ingredients to constitute an offence against the petitioners and the same was supported by documentary evidence produced before the Special Court. It was true that the ACIT (TDS Circle 16(2)) sought sanction from the CIT to prosecute the petitioners. During the pendency of the proceedings before the Commissioner there came to be change of jurisdiction from TDS Circle 16(2) to TDS Circle 16(1). By taking notice of this change of jurisdiction, the Commissioner had rightly passed the order of sanction permitting ACIT, Circle 16(1) to prosecute the petitioners and as such there was no illegality. It was contended that the order of sanction was in accordance with Section 279(1).
Held that,
++ from the provisions of income tax Act, it is clear that wherever a company fails to deduct the tax at source and remit the same to the account of the Central Government, attracts criminal prosecution and also recovery proceedings. The criminal proceedings are independent of recovery proceedings. The criminal proceedings are not dependent on the recovery proceedings. Therefore the pendency of proceedings initiated u/s 201(1) and Section 201(1-A) is not a legal impediment to continue the criminal prosecution against the petitioners. The pendency of proceedings u/s 201(1) and 201(1-A) cannot act as a bar to the institution and continuance of criminal prosecution for the offences punishable u/s 276-B. Quantification of amount for the purpose of initiation of criminal proceedings is not necessary. Therefore I am of the considered opinion that the proceedings initiated against the petitioners cannot be quashed on the ground that the proceedings under Section 201(1) and Section 201(1-A) are pending. Respondents contend that the criminal prosecution against the petitioners is not founded upon the order of the AO u/s 201(1) and Section 201(1-A). On the other hand the complaint against the petitioners is based on the admission and representation in the form of letters written on behalf of the petitioner company. In support of this contention the respondents have relied on the letters written by the petitioner company Annexure R-4 dated 17.11.2011, Annexure R-9 dated 21.12.2011, Annexure R-10 dated 05.01.2012, Annexure R-11 dated 27.01.2012, Annexure R-12 dated 21.02.2012, Annexure R-14 dated 02.03.2012, Annexure R-15 dated 09.03.2012, Annexure R-16 dated 15.03.2012. From these documents it is seen that the petitioner No. 1 company, petitioner No.2 – Chairman and Managing Director, the authorized representatives and other concerned officials admit the deduction of tax at source, failure to credit the same to the account of the Central Government and pleaded for some time to pay the same. According to respondents the account books maintained by the petitioner No.1 company also specifies the deduction of tax at source and failure to credit the same to the account of the Central Government. It is on the basis of these documentary evidence, admissions and the audited accounts the criminal prosecution is initiated against the petitioners. Therefore the outcome of the proceedings initiated by the Assessing Authority under Section 201(1) and 201(1-A) of the I.T. Act has no bearing on the prosecution proceedings. Therefore point No. i is answered in negative and against the petitioners;
++ a reading of the complaints specifies the relevant financial years, the amount deducted at source and failure to pay the same to the account of the Central Government. Even the details of non-remittance of TDS of salaries for each financial year and monthwise is also specified. The correspondence between the parties wherein the petitioners have admitted the liability is also referred in the complaint and the same are relied on. Therefore the complaint filed by the respondent contains the necessary ingredients for taking cognizance of offence against the petitioners. Therefore the contention that on the ground of lack of necessary averments in the pleadings the proceedings are to be quashed is hereby rejected. Accordingly, point No. ii is answered in negative and against the petitioners;
++ it is contended that the Assistant Commissioner of Income Tax, TDS Circle 16(2) sought sanction from the Commissioner of Income Tax. The Commissioner of Income Tax had given sanction authorizing the Assistant Commissioner of Income Tax, TDS Circle 16(1) to initiate criminal proceedings against the petitioners and as such the same is bad in law. It is not in dispute that the case of petitioner No.1 company was pending before the ACIT, TDS Circle 16(2) and subsequently the case of the assessee was transferred to ACIT, TDS Circle 16(1). By taking note of this development the Commissioner passed an order authorizing ACIT, TDS Circle 16(1) to initiate criminal proceedings. It is necessary for the Commissioner to take into consideration the developments that had taken place pending consideration of the request for sanction. In the instant case the Commissioner rightly, by taking into consideration, the subsequent development passed the order of sanction. I find no error or illegality in the order of the Commissioner;
++ petitioner No. 2 is the Chairman and Managing Director of petitioner No. 1 Company. It is contended that the name of petitioner No. 2 do not find a place in the order under Section 201 IPC and Section 201(A). Further petitioner No. 2 was not in charge of the day-to-day business of petitioner No. 1 company in relation to deduction of tax at source and remittance of the same to the account of the Central Government. Therefore treating petitioner No. 2 as the Principal Officer of petitioner No. 1 company for the purpose of initiation of criminal proceedings is contrary to law. I decline to accept this contention of the counsel for the petitioners. Admittedly the annual report of petitioner No.1 company specifies that petitioner No. 2 is the Chairman and Chief Executive Officer of petitioner No. 1 company. In the complaint it is specifically pleaded that petitioner No. 2 being the Principal Officer of petitioner No.1 company is directly responsible for the default in deducting the tax at source and non-remittance of the same to the account of the Central Government. It is contended that petitioner No. 2 is responsible for the day-to-day conduct and business of petitioner No. 1 company. By treating petitioner No. 2 as the Principal Officer of petitioner No.1 company u/s 2(35) proceedings are initiated;
++ on 02.01.2014 petitioners filed an application u/s 482 Cr. P.C. bringing to the notice of this Court a subsequent event and a document supporting the same. The subsequent event is, treating one Sri. T.R. Venkatadri, Assistant Vice President (Regional Accounts South and Taxation) of petitioner No. 1 company as the Principal Officer under Section 2(35-B) of the I.T. Act. The counsel for the petitioners contends that in view of this development proceedings initiated against petitioner No. 2 are liable to be quashed. I decline to accept this contention of the counsel for the petitioners. A reading of Section 2(35-B) specifies that there is no bar for treating more than one person as the Principal Officer for initiation of criminal proceedings. The Supreme Court in the case of Madumilan Syntex supra, held that it was alleged in the show-cause notice as well as in the complaint that they were "principal officers" of the company. In the show-cause notice, it was asserted that the appellants were considered as principal officers u/s 2 (35). In the complaint also, it was stated that the other accused were associated with the business of the company and were treated as principal officers u/s 2(35) and hence they could be prosecuted. Dealing with an application for discharge, the trial court observed that accused No.1 was the company whereas the other accused were the directors. Whether they could be said to be principal officers or not would require evidence and it could be considered at the stage of trial and the application was rejected. In revision, the first additional sessions judge took a similar view. Therefore the subsequent event treating one Sri. T. R. Venkatadri as the Principal Officer of petitioner No.1 company will not result in quashing of the proceedings against petitioner No. 2. It is open for the respondent authorities to proceed against the company, its directors or any other principal officer or officers responsible for default. The trial Court to consider this question in the trial. Accordingly point No. iii is answered in negative and against the petitioners. For the reasons stated above, the petitions are hereby dismissed.
Regards
Prarthana Jalan
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